The Financial Services Agency (FSA) in Tokyo financial regulator may suspend or even end some private banking operations at the Japanese commercial banking unit of Citigroup Inc. due to lost customer data and questionable securities transactions, according to a report in the Nihon Keizai newspaper (Nikkei).
The report says the handling by Citibank of trust banking, securities and insurance services for wealthy clients through its private banking unit violated the legally mandated separation of such services. Nikkei also said the bank mishandled customer data earlier this year, losing details of Japanese customers’ accounts.
The Financial Services Agency (FSA) was likely to issue its penalty, which was likely to include an order to improve business practices, today, said the newspaper.
A source told Reuters last week that the FSA is considering action against Citibank for unspecified violations of commercial banking laws. Separately, Japan’s markets watchdog, the Securities and Exchange Surveillance Commission (SESC), said on Tuesday it would call for the FSA to issue an administrative penalty against Citibank for violating securities rules.
The SESC said Citibank had misled clients in a series of private bond placements last year, among other infractions. Citibank said at that time it regretted the matter. According to the SESC, employees at Citibank’s private banking operation in Tokyo misrepresented the level of risk attached to structured bonds — tailor-made securities whose conditions vary from client to client — offered by the bank. The SESC also said the bank had urged a client to purchase such bonds as a condition for providing a loan. The violations took place between April and August last year, the watchdog said.
Penalties in similar cases involving other banks have ranged from a warning to improve internal controls to a 30-day suspension of some operations, the SESC said. The FSA has stepped up inspections of Japanese and foreign financial institutions in recent years, citing a need to improve confidence in Tokyo’s financial markets.